Credit crunch also affects local commercial market

November 21, 2008|By GENE STOWE Tribune Correspondent

The Michiana commercial real estate market, somewhat buffered from the wide swings of larger areas and supported by local financial institutions, is still weathering the worst downturn since the early 1990s, observers say.

Â?We are in a tertiary market, so a lot of the problems, the high-profile issues youÂ?re seeing, are not quite as prevalent in our market,Â? says Ed Bradley, president, property management, for Grubb & Ellis/Cressy & Everett.

Â?We are the Midwest,Â? agrees Brad Toothaker, president and CEO of the South Bend affiliate office of CB Richard Ellis. Â?The pendulum doesnÂ?t swing as wide here as it does on the coasts.Â?

A combination of pessimistic perceptions and real tightening of credit is slowing down the market.

Â?The reality is that the credit crunch is impacting peopleÂ?s decision-making,Â? Bradley says. Â?Money is more difficult to get. From a sales standpoint, weÂ?re seeing that the underwriting criteria for banks and lenders has tightened up.Â?

Local and regional lenders are making money available for those who can meet more strict requirements.

Â?The local banks are the ones that are propping up our local economy,Â? Toothaker says. Â?WeÂ?re fortunate to have the local financial institutions that we do that are keeping capital in the marketplace.Â?

Â?It hasnÂ?t ground to a halt,Â? Bradley says. Â?The people with cash, the people with healthy financial statements, are in a good position now.Â?

Still, prospective buyers are much more cautious in the uncertain times.

Â?From a market standpoint, people are making decisions a lot slower, if theyÂ?re making them at all,Â? Bradley says. Â?The kinds of transactions that are taking place are taking longer. TheyÂ?re taking more creativity by sellers and buyers,Â? such as sellersÂ? participation in financing arrangements.

One client recently put off the decision to buy a building that would have been ideal for his business, Bradley says. Â?They donÂ?t know if weÂ?re seeing the bottom of the market,Â? he says.

Â?I would say the early Â?90s is the last time it got this soft,Â? he says. Â?ThereÂ?s quite a bit of retail shift in that period of time. EverybodyÂ?s waiting to see whatÂ?s going to happen. It has everybody spooked.Â?

In retail, a relative abundance of new space built before the recent turmoil in the economy is making conditions difficult for landlords as tenants struggle to make ends meet.

Â?There was an oversupply to begin with,Â? says Bradley, listing Heritage Square, City Center, and also stores in the area around the new Target. Â?That was before some of the new economic conditions. The discretionary income that drives those retail spots is drying up.Â?

Developers are going to be less choosy about the tenant mix than they might have originally planned, and landlords and tenants need to keep in touch, perhaps restructuring deals to avoid emptying storefronts.

Â?Whatever itÂ?s going to take to fill the space,Â? Bradley says. Â?YouÂ?re going see discounting of rents and whatever it takes to do deals. TheyÂ?ve got to make the rent payments. I would hope that communication is happening.Â?

While the slowdown is likely to continue at least well into next year, the correction in somewhat inflated prices means that some people will find attractive deals, Toothaker says.

Â?ThereÂ?s going to be a ton of opportunity for business and real estate,Â? he says.